Insights: How banks can unlock the finance needed to get to net zero

COP27 this year has underlined the urgency of the environmental pressures facing our planet, while at the same time the need for practical solutions towards achieving net-zero carbon emissions by 2050.

Within the first few days alone, governments, entities and corporations have continued to make pledges and tangible plans to deliver meaningful breakthroughs to safeguard the future. In the corporate world, a mission of this magnitude requires resources, commitment, and ingenuity from broad stakeholder groups. It requires cooperation, not competition.

It is also obvious that climate change is not purely a scientific challenge, it’s also an economic one. If we are serious about achieving the recommendation by the Paris Agreement to limit global temperature increases, we will need an immense economic transition.

Systems that account for global emissions such as power, industry, mobility, buildings, agriculture, forestry and waste — will all need to be transformed to reach net-zero emissions. To achieve this, the world’s biggest financial players will play a deep enabling role in helping to finance the transition towards sustainable and low carbon growth.

At First Abu Dhabi Bank (FAB), we are playing our part and have committed to lend, invest, and facilitate $75bn in sustainable finance by 2030. Alongside this, around one year ago, FAB became the first UAE and GCC bank to join the Net Zero Banking Alliance, in doing so we made a commitment to become net zero by 2050.

Sustainable finance is a means to finance investments taking into account the environmental, social, and governance (ESG) factors of an economic activity or project. This year alone, FAB has facilitated over $5.5bn of Sustainable Finance tailored towards bringing about a better tomorrow.

A notable example is in the transport sector, where FAB supported Etihad Rail with a financing of Dhs1.99bn for the development of the passenger rail project in the country. The Etihad Rail freight and passenger rail network once completed, will form the largest land transport system in the UAE and is expected to reduce road-based emissions by as much as 70-80 per cent, as well as provide more than 9,000 jobs.

In other areas we’ve structured green financing for the development of renewable energy projects such as solar and wind projects, the construction of energy efficient buildings and infrastructure development for sustainable water management. Some notable projects include the Sweihan PV Green Bond where FAB acted as joint lead manager and bookrunner. FAB also worked very closely with Masdar, Etihad Credit Insurance and other development finance institutions to successfully finance a wind project in Uzbekistan.

In addition to financing these projects on the ‘Use of Proceeds’ methodology, FAB has also been instrumental in advising on and structuring sustainability linked loans, or SLLs, for some of our clients, linked to key performance indicators, with periodic sustainability performance targets, or SPTs, and appropriate commercial terms, incentivising the client to meet their sustainability targets over the period of the financing.

As governments and corporations continue to pursue the transition to net-zero, investment in infrastructure and innovative technology will both be needed in equal abundance. An excellent example emerges when we look at hydrogen. Smart investments if deployed properly could enable hydrogen to complement other technologies like renewable power, biofuels, or energy efficiency improvements especially across carbon intensive sectors such as heavy industry, maritime, and aviation. With the focus on green hydrogen in the MENA region, FAB intends to play a leading role in facilitating the financing of such projects to help support the energy transition for the region.

In the near term, I believe banks will play a major role in financing future fuels and similar solutions with investments targeted to resolve production, distribution, and technical obstacles and to help these fuels become cost effective and scalable.

However, we must also acknowledge that hydrocarbons will still be needed for the foreseeable future. As Dr Sultan Al Jaber, the Minister of Industry and Advanced Technology of the UAE,  managing director and group CEO of ADNOC Group and the chairman of Masdar, affirmed this year at ADIPEC: “The world needs maximum energy, minimum emissions”. And to achieve this the UAE is taking a pragmatic approach to the energy mix, likewise at FAB, we’re playing a role to facilitate and accelerate the energy transition.

One major tool that FAB deploys for its fund-raising activities is green bonds where the money raised from investors is used exclusively to finance projects that have a positive environmental impact. We were the first bank in the GCC to issue a green bond back in 2017 and have remained a leader in this area ever since, and have issued several private placements since the first issuance.

The provision of green bonds and green private placements products are a vital aspect of our sustainability strategy and the projects we are actively involved in. In addition to this, we recognise that a big part of sustainable investing involves client engagement. That’s why we recently launched sustainable current and savings accounts for corporate customers to enable these corporates to contribute towards sustainable development.

So far, our efforts have been recognised in our industry, and one of the key testaments to this is our title as the ‘Best Bank for ESG in the UAE’ by Euromoney. As we look ahead, we’ll continue to lead the coordinated efforts of our industry, and to drive impactful developments in climate action in the markets where we operate. In parallel, we’ll continue to refine our investment solutions and strategies to ensure these meet the expectations of our clients and the realities of the world they live in.

Martin Tricaud is the group head of investment banking at First Abu Dhabi Bank (FAB)